A well-designed commercial contract is crucial to the success of outsourcing your software development. It should reflect what was agreed upon during the negotiations, specify the scope of the project, and focus on business outcomes that both sides want to achieve. At the end of the day, you will reap what you sow.
In the Time & Material contract the customer pays the supplier for the time of work (according to the previously agreed hourly rate of each team member) and the materials used (e.g. using the software license). The performer's hourly rate considers all costs and profits, as calculated by the vendor.
This contract is generally used for short-term projects where the scope of cooperation is difficult to define at an early stage. It requires both sides to trust each other – customers know what they pay for and in their opinion the value is fair enough.